60% of Canadians saving for retirement, just not wisely

Savers have amassed $70,700 each and it’s mostly in cash

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Saving for retirement may be a top financial priority for Canadians but judging by how much has been socked away and how it’s invested, we’re not doing a great job at it, findings from the just-released BlackRock 2015 Global Investor Pulse Survey suggest.

BlackRock polled 2,000 Canadians as part of a larger international study and found that while 60% of Canadians are actively saving for retirement, including 52% of 25-to-34-year-olds, there’s a clear discrepancy between retirement income expectations and savings habits.

Respondents said on average they expect an annual income of $46,900 for 25 years in retirement. But those who’ve started saving have amassed on average just $70,700 in total, barely enough to cover 18 months of expenses. That number is little higher among pre-retirees aged 55 to 64 at $125,000, still likely not enough even if expertly invested.

“Retirement is one of the most important global issues that we face today, this survey reinforces that point,” Chip Castille, BlackRock’s Chief Retirement Strategist, said in a press release.

“As we contend with a decline in traditional sources of retirement income, coupled with global populations living longer, understanding the gaps and taking meaningful steps to address them is both a challenge and an opportunity. Whether it’s starting early, engaging in a workplace plan or simply understanding how much annual income you’ll need, just getting started is a powerful first step that everyone should be taking.”

The survey shows that while 47% and 42% are contributing to Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts, respectively, only 40% said they have some idea of how much money they need to retire and a full one-third said they had no idea at all. (In case you’re wondering, MoneySense crunched the numbers and found the typical middle-class Canadian couple can live comfortably on $42,000 to $72,000 a year ($30,000 to $50,000 for singles) assuming no mortgage or child costs. You can use this tool to arrive at a more specific number for yourself.)

Knowledge gap

The Investor Pulse also revealed a troubling lack of investment knowledge. One-in-four said they are clueless about their current investment options and only 36% said they are at least somewhat knowledgeable about what types of investments they should consider to maximize their retirement savings.

Nothing illustrates this skills problem better than the actual makeup of Canadian portfolios. A whopping 60% of the typical portfolio is being held in cash–far too much to meet most retirement needs when you factor in record-low interest rates and inflation. What’s more, nearly half of survey respondents (45%) said they plan to increase their cash holdings next year. The average Canadian portfolio holds just 19% in equities, 7% in bonds, 4% in property, 3% in alternatives and the rest in other asset classes.

When asked why they’re sitting on so much cash, the majority cited accessibility and/or convenience while 25% admitted to a fear of losing money and 10% said it was because they didn’t understand their options.

Scepticism about the stock market abounds, the study suggests. Less than half of Canadians (44%) agree with the statement “Investing is for people like me” and a full 51% believe investing is like gambling.

Crisis of confidence

Conservative attitudes are accompanied by concern for the future, especially among lower-income Canadians. Whereas 73% of affluent Canadians (net worths and investments of $150,000 or more) are generally positive about their financial futures, only 43% of the rest are equally optimistic, way down from two years ago.

“The results suggest that the investment industry, and investing in general, has something of an image problem among Canadians,” said Karrie Van Belle, Managing Director at BlackRock Canada. “Given recent market volatility, that might not be surprising, but there is clearly a need for a renewed commitment to financial literacy and investor education, not just to inspire confidence in the markets, but also to help Canadians realize that they do have choices.”

Only a small minority of Canadians feel the need to consult a financial advisor to help plan for long-term goals or address important life event such as an inheritance, retirement, divorce etc. According the report, 38% of Canadians currently consult a financial advisor and 21% have worked with one in the past suggesting Canadians’ approach to financial advice is often transactional in nature and short-lived. This holds true despite findings of relatively high customer satisfaction ratings for all types of advisors. BlackRock found 67% of independent investment advisor clients report they are “very satisfied” with their advisor, compared to 46% for bank branch advisors and 63% for full-service brokerage advisors.

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13 comments on “60% of Canadians saving for retirement, just not wisely

  1. I you are affluent if you’ve a net worth of 150k ( 11th paragraph). Really?

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    • The results of the destruction of workplace pension systems and their replacement with self-directed pension savings. Disastrous for workers.

      This is why an enhanced CPP is necessary, and why workers should agitate for a return to defined benefit pension plans.

      And it isn’t exactly irrational to view investing as a form of gambling. I’m heavily invested, and I view it as a form of gambling Gambling with much better odds than the bets available for the mathematically challenged at the casino, but gambling none the less. There is no guarantee that the stock market or the bond market or any other market will rise over the long term. There is risk that you could lose the money that you have invested. The chance that you will be left with absolutely nothing may be slim, but it exists. You are certainly not guaranteed to see any return on your investment over time at all, although you would never know this to be the case from listening to most people who are avid investors.

      And why on earth would people trust financial advisors? Financial advisors are generally just salespeople with inflated titles. You can pay a fee-only planner for advice, but this is very expensive unless you have a larger portfolio than “lower income” Canadians have, and even then it’s difficult to tell if you are getting what you are paying for. The entire financial industry is made up of people who worship $$ and this can make those of us who don’t really uncomfortable. I’m sure that once you hit millions of dollars in your portfolio these people start treating you with respect, but everyday folk are treated like rubes.

      This idea that we should all be experts in investing is ridiculous. Not everybody wants to be an expert in investing. And it’s not like it’s a straight forward subject on which to become educated. Read ten different sources, get ten different opinions on the right way to do things. And this is not an area where you want to make a quick decision because bad decisions could have disastrous long term consequences. It would be much more rational if we decided tomorrow that everyone should be their own auto mechanic.

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      • @Sarah, totally disagree.
        CPP + OAS are meant to be supplements and insurance combined with your own plan. Not a golden pension. Enhancing our pensions will only result in a marginal increase in peoples monthly payments. Still not enough to live on. Plus I disagree with the CPP concept. You all realize you could pay into it for 45 years, die at 68, then all that money you contributed is lost to your survivors… Sorry I prefer to take the risk of investing the additional money on my own, but leaving whatever is available to my survivors after taxes… Better to create our own “life income funds” with the proposed 4% enhancement then let proven inefficient governments invest for me. How often does the world have to prove the government security blankets don’t generally end well?

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        • You may want to invest and hand down to your kids, but survey says most people support an expanded CPP. It’s the disconnect between those who are avid investors and the vast majority of the population that are not.

          Over the past 50 years, the number of Canadians covered by a registered pension plan (either DC or DB) has plummeted. Instead of pooling resources with their coworkers and accessing expert advice through a pension program people are left to put together their own plan with piecemeal advice from banks and what little advice they get from group RRSP programs at work. This is often insufficient, leaves people saving too little, invested poorly, and exposed to too much risk.

          The only solution proffered by the financial establishment is that all workers become investment experts. This is unrealistic, and – besides which – is inefficient. It’s also clearly not working. People are not investment experts. This is actually working out fairly well for the finance industry as they are skimming of quite a large amount in fees from the people they do get to pull in, but for the rest of us who will be faced with a large generation of people with insufficient funds on which to live on in retirement it’s a disaster waiting to happen.

          As for handing down wealth to survivors, I don’t think dynastic wealth is good for any country. It’s tempting to think of setting up my kids with a life of ease, but it’s not right or fair. My kids are already overly privileged without getting a couple of million extra as a present after my death. I’d much prefer to have that money redistributed to help maintain a social safety net that will be there if anybody (including my kids) are in need.

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  2. The problem I think with most people is they are concerned that they may need that money as a job loss is more common than say 20, 30 years ago. Also, many people don’t want to have a chance of losing money in stocks, mutual funds and other high fee investment products.

    Well, the average Canadian with $70,700 put in in cash is probably earning only a 0.50% to 1.75% depending if they shop around so $353.50 to $1,237.50 a year.

    It is true, interest rates are low and have kept falling much faster after the 2007 to 2008 global, financial crisis. If someone wants a future amount known for registered retirement savings plans, RRSP and Tax Free Savings Accounts, TFSA, there are zero coupon bonds that are government backed.

    A 35 year old with $70,700 in a RRSP, TFSA could get around 3.56% these days which my retirement at say 65, would be worth $201,920.62. This is at least a 70% to 246% more than sitting in cash about $82,000 to $119,000 and 40% higher than highest 5 year GICs, $144,000.

    This is if you don’t want anything to do with corporate bonds, zero coupon bonds, stocks, mortgage investments, real estate investments like REITs. etc.

    My coworker was telling me before he retired in 2010 that interest rates would fall more when many in the financial media were saying the opposite. He took all his and his wife’s RRSP worth $600,000 and bought long term 30 year government bonds at 4.5% to 4.6%.

    They get $3,412.50 paid into their RRSP every 1.5 months which is $27,300 a year. They just keep reinvesting it in GICs, government bonds from 2.5% to 3.5%. They still do not use this money as C.P.P. OAS and GIC interest income of $3,000 a year meets their needs and builds up a small savings account, $4,000 so far there.

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  3. The fact about interest rates are true that they have fallen alot since the beginning of this century, 2000. Longer term government zero coupon bonds were in the 6.4% to 6.6% range.

    The same $70,700 at those 6.5% average rates compound is a big difference. It would be worth $467,635 versus $202,000 at maturity. The more concerning part is that the big difference in annual retirement interest income of the two, $202,000 would provide $7,191 versus $467,635 would provide $30,396, 4.22 times less versus 2.31 times less in RRSP, investments, TFSA was not introduced until 2009.

    There is no easy way out of this. My wife and I have since 2013 have downsized our lifestyle and moved to cheaper housing. We have a little smaller house, 400 square feet less and a little smaller lot just 20 minutes more out of the city and we have only one car which my wife works from home now.

    We banked $100,000 from the sale house which means we only have $50,000 left on our mortgage from a $300,000 house and we are now saving $800 a month more from having one car now. This means we will be debt free as we have no other debts in 18 months, we will be 37 years old.

    This means we are putting are maximum RRSP for each of us, $8,400 for me and $6,000 for her every year and taking the annual RRSP refund of $4,800 a year in our TFSA. We are putting each another $6,200 a year too. We do put another $200 a month into savings accounts.

    The current $104,000 RRSP for myself and my wife’s zero coupon bonds will be $325,000 by our retirement, 65 years old and our current TFSA for both of us is $90,000 wlll be $300,000 by retirement 65 years old.

    We have been very carefully paying down our mortgage between 5% to 7% every year mortgage principal prepayment over the last 12 years and we started saving more and more in each of RRSP and TFSA for the last 9.5 years.

    All I can say is start maxing out your RRSP, TFSA, savings as early as possible and don’t leave it in low savings account rates for long. Don’t get discouraged about how much you think you might need but just start doing something and be realistic.

    Don’t expect 6%, 7%, 8%+ annual returns or interest rates. Use more conservative interest rates, returns like 3%, 3.5%, 4.00% maybe 4.25%, if interest rates start to go up and stay up for years.

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  4. I lost $12,000 in mutual funds even with this so called higher stock market and recovery since 2008. I put my maximum RRSP every year and just buy 5 year GIC’s. I know it is boring and I will not alot, this year is pretty bad 2.55% at best compare to last year 3.1% is what I got. However, I quit smoking and have now $2,800 more for my RRSP plus the refund of $900. I am now putting $10,000 a year for 2 years but still have $35,000 RRSP contribution room since my 18th birthday. My RRSP with GIC’s totaled $55,000 last check. I think for a 24 year old I am doing pretty good. My $12,000 loss still haunts me today and I don’t know if I will ever buy mutual funds in my RRSP or outside in a regular account even if there is some benefit of maybe a few thousand dollars tax refund.

    Reply

    • You’re doing very well, Chris, you should feel proud for taking your financial future so seriously. Just be aware that GICs are a terrible investment choice for someone your age. You need growth. If the 12k loss was too much for you, that doesn’t mean you shouldn’t be out of growth markets entirely, just tell your financial advisor/planner that you have a low risk profile but still need strong growth. They can put together a more balanced approach that can remove the type of downside risk you experienced.

      Again, you should feel proud for where you are at 24. You’re ahead of the game and will be pleased with the lower stress it will give you later in life.

      But yeah, get out of those GICs if your time horizon is anywhere over 4 years (which it sounds like it is)

      Reply

    • Hello Chris. You’re following my path exactly when I was your age. I optimized all personal tax advantages, TFSA, etc. all my life,
      and had to bite the bullet over the years with 5 yr. GICs but have reached my goals at age 56. It’s been a boring long haul but I’m happy with results. I wish you much luck, young man.

      Reply

  5. Very good article. Better than most that cover this type of information. Shocking the number of people that think that the stock market is basically like going to the casino. I guess it should be less shocking the number of people that are unwilling to save properly for retirement. The two go hand-in-hand.

    Reply

    • Come now, apart from the fact that almost all investing involves risk of losing principle, and is thus a gamble, there are definitely some forms of investing that are very much like gambling. Like, for instance, day trading. In fact, active trading in general for most people is pretty much gambling.

      When I first set up my SDRRSP account the bank immediately tried to get me to stop just investing in indexed funds and start trading options as well. What the hell do I know about options trading? Squat. If I had started investing in options I would have been gambling with my money. When the bank encourages you to take such foolish risks with your money it’s easy to see why people view investing as equivalent to visiting a casino, because the results would be pretty much equivalent.

      As for people being “unwilling” to save adequately for retirement, I think there are a number of people who are not necessarily “unwilling” but rather “unable”. Wages have stagnated while costs have risen. Savings rates have fallen as a result – hardly a surprise. Others see this huge mountain of cash they are supposed to somehow save for retirement and give up because it seems impossible. They save for several years and their investments sit there either losing money to inflation or gaining a couple of percent interest and they wonder where all these excellent returns everyone is talking about in these retirement savings charts are and they lose hope. It’s a natural response to the data with which they are presented.

      Reply

  6. I find it interesting that when it comes to investing Canadians generally behave in a cautious and conservative manner because they are unsure about the future and what lies around the corner, but when it comes to voting they are prepared to throw caution to the wind and bet on lofty dreams and spending which will create large deficits.

    Apparently they do not realize that accumulated government debt requires large amounts of tax dollars to just pay the accumulating interest let alone making any principal payments. They seem to think that they can just carry on with their lives and somehow things will sort themselves out with the actions of government. This also seems to be the same mantra they follow with their own lives. Live today and worry about tomorrow when it comes.

    The sad truth of the matter is that those who take charge of their lives and keep their noses to the grindstone in order to get an education, find a decent paying job, scrimp and save, invest for their future and keep an eye on their budgets are criticized as somehow not caring and even somehow being part of the problem.

    When will Canadians come to the reality that government gets the money it deals with from one source – us the taxpayers. Government is unable to look after you from cradle to grave, and quite frankly I do not want a socialist/communist regime looking after me so in return they get to dictate my life. I much prefer to remain free of government telling me what to do and what not to do so I can live my life as I see fit without interfering with others.

    CD

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  7. I am retired i am a Single man I Own My One Bed Condo on the Lake Just outside Toronto I own My 4 year old car …In Total I have Approx 3 thou’ a month coming in ..That’s It..All my expences are approx. Twelve hundred Dollars per month..Now I don’t know what most people would think of that ..Probably not much..But I see it as living in Paradise…I love my life..It is amazing how little you need to be happy in retirement..But I also have something that is 100% required for a happy retirement..GOOD HEALTH..Without that .All the Pensions/Money really does not mean all that..So STAY HEALTHY NO Smoking Ok?

    Reply

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